Good Idea

The Deputy Governor of the People's Bank of China, their central bank, is calling for the the imposition of a financial transactions tax:

China should take measures, such as the so-called Tobin tax, to deter currency speculators, according to central bank Deputy Governor Yi Gang.

The steps could include a punitive levy on foreign-exchange trades and the imposition of “handling” fees to counter short-term capital flows aiming for arbitrage, Yi wrote in an article in China Finance magazine, a People’s Bank of China publication. He is revisiting the Tobin tax idea after mentioning it more than a year ago.

His comments suggest the PBOC take greater control of the currency at a time when China is looking to satisfy the International Monetary Fund’s condition that the yuan be more freely usable before it can be admitted into the agency’s Special Drawing Rights basket. While the nation is opening up the interbank bond and currency markets to foreign central banks, it has introduced measures against bets on yuan declines after a surprise devaluation in August triggered the biggest monthly slide since 1994.

Nobel Laureate economist James Tobin first proposed the levy in 1972 after U.S. President Richard Nixon’s decision to abandon the dollar’s peg with gold pushed up global volatility. The tax has in the past been rejected by economies from Europe to South Korea because of the risk investors will simply take their business elsewhere.

That last bit is false, of course.

The British financial center, the City of London, has been a major financial center even though it has a ½% transaction tax.

This suggestion is largely a statement of self interest:  China is experiencing, or will soon experience, a downturn, and when that happens they would be whipsawed by destructive capital flows.

Setting this up before a panic would be beneficial.

Setting this up now and forever, on all financial transactions to discourage unproductive speculation would be a very good thing.